Electronic Trading System

ABSTRACT

An anonymous trading system comprises one or more matching engines, one or more market distributors and one or more trader terminals for input of orders from institutions trading on the system. The trader terminals are connected to the system through bank nodes. A broker terminal is connected through a bank node and enables voice brokers to trade on the system on behalf of client traders. The voice brokers terminal can be configured for any client trader and will display the market view for that trader. Trades in which the broker terminal participates are not concluded until a manual credit check has been performed.

FIELD OF THE INVENTION

This invention relates to an electronic trading system, and inparticular, but not exclusively, to systems for trading financialinstruments, including, but not limited to, forward rate agreements(FRAs), Spot F/X and swaps. It is also concerned with commodity tradingsystems.

BACKGROUND TO THE INVENTION AND DESCRIPTION OF PRIOR ART

Traditionally, financial instruments such as foreign exchange andforward rate agreements were traded through voice brokers. Traders wouldcall their voice broker with a bid or offer and the broker would attemptto find a match with a counterparty. The voice broker would notnecessarily reveal the identity of the counterparty at the earlieststage of the deal but would ensure that each of the parties extended tothe other sufficient lines of credit for a deal to be completed. Where atrader trades through a given broker frequently, the broker will get toknow with what counterparties the trader has a line of credit and,empirically, will filter out bids or offers of which he is aware if heconsiders that there is little or no likelihood of the trader being ableto trade with the counterparty in question.

With the advent of computerised trading systems, the importance of voicebrokers has diminished and much of the trades executed, for example onthe F/X spot market, are conducted through anonymous trading systems orelectronic conversational systems which attempt to mimic the role of thevoice broker. However, voice brokers have not been entirely replaced byelectronic systems and they still play an important role in the market.

A number of anonymous trading systems have been proposed and introducedinto the market. At present, two systems, provided by Reuters Limited ofLondon England and EBS Dealing. Resources, Inc, of New York, N.Y. areprevalent in the foreign exchange spot (F/X spot) trading market. Bothof these systems are anonymous in that traders enter bids and offersanonymously and see prices entered into the system by potentialcounterparties but not the identity of those counterparties. Theidentities of the parties are only revealed when the deal has beencompleted. To ensure that deals are not effected between parties whichdo not have a sufficient line of credit with each other for the deal, acomplex credit checking operation is performed before deal completion.If there is insufficient credit the deal is either rejected or onlypartially completed.

A version of the EBS System is described in U.S. Pat. No. 5,375,055, thedisclosure of which is incorporated herein by reference. In this system,credit limits set by the potential parties to transactions are stored atMarket Access Nodes to which workstations are connected. An institutionwill set and store a credit limit for each potential counterparty withwhich it is prepared to deal. The Market Access Nodes are linked to oneor more Market Distributors and one or more Arbitrators. The MarketDistributors distribute prices of bids and offers using a pre-authorisedmatrix derived from the credit limits stored at the Market Access Nodes.The pre-authorisation matrix is used to inhibit trades betweenincompatible counterparties and to screen bids and offers prior todisplay so that each trader workstation displays only those bids andoffers submitted by counterparties with whom he has credit. Thus, alldisplayed prices are dealable.

The arbitrators' function is to match bids and offers and to resolvepossible contentions in trades which could arise due to the nature ofthe system.

The Reuters system is exemplified in EP-A-0,399,850, EP-A-0,406,026 andEP-A-0,411,748.

Both the systems identified above have been accepted by the financialmarkets and have been very successful. However, they suffer from thedisadvantage that they are separated from the rest of the institutions'trading operations. Thus, only those institutions which have installedone of the systems can trade using it. Trades are limited to the amountof credit which has been assigned. This credit can not be used for othertrades, for example outside the system fur different instruments, evenif made with the same counterparty. This restriction can reduceliquidity. The existing systems also have the disadvantage that tradersare limited to trading the specific instruments provided for by thesystems.

SUMMARY OF THE INVENTION

The present invention aims to address the disadvantages of existingsystems mentioned above and to provide a more flexible electronictrading system.

In its broadest form, the invention resides in the incorporation ofvoice broking functions into an electronic or anonymous trading system.

More specifically, there is provided a computerised trading system fortrading instruments between trading parties, comprising: acommunications network for transmitting electronic messages; a pluralityof trader order input devices connected to the communications network,each for generating electronic orders including bid and/or offer ordersand for communication to traders of order information received fromother input devices over the network; at least one broker order inputdevice connected to the communications networks for generatingelectronic orders including bid and/or offer orders on behalf of aselected one of a plurality of client traders and for communication to abroker of order information received from other input devices over thenetwork; at least one matching engine connected to the network formatching bid and offer orders input into the system from the order inputdevices and for executing deals where prices are matched; and a marketdistributor connected to the network for distributing order pricemessages to the order input devices, the market distributor beingresponsible to the order messages and the matching engine.

The invention also provides a computerised trading system for tradinginstruments between parties comprising: a plurality or order inputdevices for entering order information into the system, the order inputdevices including a plurality of trader input devices for inputtingorder from traders, and at least one broker order input device fortrading on behalf of a plurality of clients; at least one matchingengine connected to the network for matching bid and offer orders inputinto the system and for executing deals where orders are matched; and amarket distributor for distributing order price messages to the orderinput devices, the market distributor being responsible to the ordermessages and the matching engine, wherein trades conducted betweentrader order input devices are anonymous as to the parties untilcompletion of a trade, and trades to which the broker order input deviceis a party require disclosure of the parties to the trade prior tocompletion of the trade.

The invention further comprises a computerised trading system fortrading instruments between parties including a plurality of order inputdevices for inputting bid and offer orders on behalf of traders, amatching engine for matching bids and offers input by traders and, wherematches are made, for executing deals, and a market distributor fordistributing details of at least a portion of the bids and offers in themarket to traders, wherein at least one of the order input devicescomprises a broker terminal for entering bids and offers into the systemon behalf of traders operating outside the system.

Embodiments of the invention have the advantage that they enable voicetraders to be linked into an automated trading system so enabling tradesinvolving voice traders to contribute to the liquidity of the tradingsystem.

Preferably, the automated trading system is an anonymous system buttrades involving a voice trader or voice broker are not anonymous.

BRIEF DESCRIPTION OF DRAWINGS

Embodiments of the invention will now be described, by way of exampleonly, and with reference to the accompanying drawings in which:

FIG. 1 is a screen shot of a known FRA trading screen;

FIG. 2 shows a Tenor Detail Panel of the screen illustrated in FIG. 1;

FIG. 3 shows an Order Request Panel of the screen illustrated in FIG. 1;

FIG. 4 is an overview of the system architecture, in particular thecommunications network and the various workstations and processing nodesassociated with it;

FIG. 5 is an overview of an embodiment of the present invention;

FIG. 6 is a flow chart showing a process where a voice broker submits anorder to the system;

FIG. 7 is a screen shot showing an offer being entered by the voicetrader on behalf of a client;

FIG. 8 is a screen shot showing the market from the Trader's client'spoint of view after the offer from him has been submitted;

FIG. 9 is a flow chart showing the process when an electronic traderhits the offer submitted by the voice trader;

FIG. 10 is a screen shot of the voice broker's workstation after theelectronic trader has hit the offer;

FIG. 11 is a screen shot of the broker's work station after the broker'sclient has accepted the electronic trader's hit;

FIG. 12 is a screen shot of the Broker's workstation when the electronictrader's hit has timed out;

FIG. 13 is a screen shot of the Broker's workstation once the deal hasbeen completed;

FIG. 14 is a flow chart showing the process when a trader calls thevoice broker with a price request;

FIG. 15 is a flow chart showing the process when a broker hits a pricefrom an electronic trader;

FIG. 16 is a flow chart showing how the electronic trader is required todisclose his identity in the process of FIG. 15;

FIG. 17 is a screen shot showing the electronic trader's workstationafter the trader accepts a hit from the broker and allowing the acceptedamount to be adjusted;

FIG. 18 is a flow chart showing the process when the broker hits a pricefrom another voice trader operating on the anonymous trading system;

FIG. 19 is a flow chart showing the process where a broker hits a pricefrom a call for a price from outside the trading system; and

FIG. 20 is a screen shot of the Broker's workstation showing how theamounts available are shown apportioned between voice broker's andelectronic traders.

DESCRIPTION OF BEST MODE

The following description is given with respect to an exemplary FRA(Forward Rate Agreement) trading system. It is to be understood thatthis has been chosen only to exemplify the invention and that theinvention is not limited to any particular financial instrument or evento financial instrument trading systems. For example, the invention maybe embodied in other financial trading systems for trading instrumentssuch as F/X spot, F/X forwards and swaps or in commodities tradingsystems. This list is not to be construed as limiting.

WO00/16224 of EBS Dealing Resources, Inc. describes a Forward RateAgreement trading system. The contents of that document are incorporatedherein by reference.

A Forward Rate Agreement (FRA) is a contract between two parties to lockin a forward interest rate, for a period, starting at a specific date inthe future. Each FRA contract can be categorised as a spot FRA, an IMMFRA or a broken date FRA. The system to be described is only intended totrade spot FRAs and IMM FRAs although trading of broken date FRAs iswithin the scope of the invention. IMM is the abbreviation which hasbecome customary to refer to an instrument traded on one of theInternational Monetary Market dates. In brief, IMM FRAs are traded forthe four International Monetary Market (IMM) dates. Spot FRAs are tradedfor dates associated with today's spot date.

A FRA trading screen 10, is shown in FIG. 1. The FRA trading workstationpresents a set of FRA contracts that may be traded in an electronicallybrokered format. Each type of contract is known as a tenor. Priceinformation for a particular tenor is displayed on a tenor line 12. Foreach tenor line, the dealing system presents the best credit-screenedbid and offer prices of all active quotes. Upon selection of the tenorline, the workstation presents a detailed view of the associated tenorshowing contract dates and additional market view information.

A trader may select a tenor line and then submit one of four order types(Bid, Offer, Buy or Sell). Each type of order requires the trader tospecify an interest rate notional amount for a particular tenor. Oncesubmitted, new orders are matched with outstanding orders in price/timepriority. Compatible orders are matched resulting in the execution ofdeals. In order to encourage market making a trader can submit andadjust bids and offers for several tenors at a time.

For non-standard FRAs, a price inquiry function allows the trader toissue a system-wide broadcast to request a price for a broken date FRA.A trader may respond to a price inquiry by selecting the entry in thebulletin board.

The credit facility uses pre-screened prices. Trading FloorAdministrators (TFAs) at the trading floors enter credit limits for eachcounterparty group of trading floors. Dealable prices are distributed tothose floors that have credit with the price maker.

The trading screen shown in FIG. 1 provides traders with the facility toenter bids, offers, buy or sell orders by selecting buttons, 14, 16, 18,20 on a toolbar at the top of the screen. The best bid/offer prices aredisplayed for tenors of various lines in one window 12 and deals done bythe trader and on the system as a whole are displayed in other windows22, 24. The display is better understood with reference to an example ofa FRA deal.

As mentioned above, a Forward Rate Agreement (FRA) is a contract betweentwo parties to lock in a forward interest rate, for a period, staring ata specific date in the future.

For example, a 6×9 FRA is a contract covering a period that beings 6months from now and ends 9 months from now. The “term” or “gap” of sucha contract is 3 months. The two counterparties, one buyer and oneseller, settle by cash payment at the start of the contract (in thiscase 6 months from now).

The buyer of a FRA will be compensated if future interest rates rise.The seller of a FRA will be compensated if future interest rates fall.

Settlement is based on the difference between the actual interest rateprevailing on the fixing date and the rate specified in the contract,for a specific notional amount stated in the contract. Settlement takesplace at the beginning of the term.

As an example, consider a USD 6×9 FRA trade for $100 million (US) at anagreed upon rate of 5.5675 executed on Sep. 9, 1997. The deal has thefollowing characteristics:

-   -   Trade Date: Sep. 9, 1997    -   Spot Date: Sep. 11, 1997    -   Fixing Date: Mar. 9, 1998    -   Settlement Date: Mar. 11, 1998    -   Maturity Date: Jun. 11, 1998    -   Contract Rate: 5.5675    -   Notional Amount: 100 million (US$)    -   Reference Rate: LIBOR

The period of this deal begins on Mar. 11, 1998 (the settlement date)and ends on Jun. 11, 1998 (the maturity date). On March 9, sometimeafter 11:30 AM London time, the back office personnel at each bank willlook on the appropriate Reuters page to read the 3-month LIBOR (LondonInterBank Offer Rate) posted for March 9. If, for example, this rate is5.5800, then between the trade date and the fixing date, the interestrate has risen 0.0125 percent or 1¼ basis points. Therefore, asettlement amount must be calculated based on this reference rate of5.58%. The settlement amount is the amount on the check paid by theseller to the buyer. The settlement amount is calculated using thefollowing formula:

Settlement Amount Calculation Example

$\frac{\begin{matrix}{{{Fixing}\mspace{14mu} {Rate}} - {\left( {{Contract}\mspace{14mu} {Rate}} \right) \times}} \\{\left( {{Days}\mspace{14mu} {in}\mspace{14mu} {Period}} \right) \times \left( {{Notional}\mspace{14mu} {Amount}} \right)}\end{matrix}}{\left( {360 \times 100} \right) + {\left( {{Fixing}\mspace{14mu} {Rate}} \right) \times 100 \times \left( {{Days}\mspace{14mu} {in}\mspace{14mu} {Period}} \right)}}$$\frac{\left( {5.58 - 5.5675} \right) \times (92) \times \left( {100,000,000} \right)}{\left( {360 \times 100} \right) + \left( {5.58 \times 100 \times (92)} \right)}$$\frac{115,000000}{87,336}$ $\underset{\_}{{{\$ 1},316.76}\;}$

Note that if interest rates had -fallen, then the buyer of the FRA mustpay the seller.

FRAs serve as both a hedging and a speculative instrument. A bank mayuse a FRA to hedge against future inflows and outflows of cash on itsbalance sheet, or a bank may use a FRA to speculate in the futuremovement of interest rates. By definition, a FRA trade isover-the-counter. The resultant contract is between two parties and istherefore dissimilar to a futures contract which is traded via anexchange.

FRAs for EBS can be split into the following categories:

-   IMM FRAs-   SPOT FRAs-   Broken Date FRAs

The present embodiment is described in relation to IMM FRAs; that isFRAs which are based on the International Monetary Market dates.

FRAs are distinguished by the dates of the contract, the reference rate,and the contract currency. Each type of FRA contract is called a tenor.Some examples tenors are listed below:

Examples of FRA Tenors:

Cash 3 month Cash 6 month Cash 12 month USD 1 × 4 DEM 1× 7 USD 1 × 13USD 3 × 6 USD 2 × 8 DEM 2 × 14 JPY 6 × 9 JPY 6 × 12 USD 12 × 24

IMM FRAs with IMM FRAs a 6 month gap Broken Data FRAs USD September 1997USD June 1997-6 USD 3 × 6 (12) USD December 1997 USD September 1998-6DEM 2 × 14 (10) JPY March 1998 JPY September 1998-6 USD 0 × 3 (3)

If the tenor is selected with a mouse or keypad, then the details of theFRA tenor line are presented in the top section of the screen. Thedetail area shows the best dealable, EBS best, and best regular pricesfor the selected tenor. The fixing date, settlement date, and maturitydate of the active tenor are shown as well.

Turning again to FIG. 1, the screen can now be better understood. TheTenor Detail Panel 26 provides a detailed view of tenor line informationand transaction activity. The Tab Controls 28 allow a user to select oneof several user-defined tab sheets. The user may designate the tab sheetproperties and components. The Tenor Line shows a tenor indicator, bestbid and offer prices, best amount available for bid and offer and a bigfigure. The TFA Messages area 29 shows messages relating to TradingFloor Administration, such as credit notifications, deal recovery, helpdesk message broadcasts. The EBS Deals Listbox 24 shows deals completedon the EBS system. The Trade Deals Listbox 22 shows deals completed bythe trader using the screen, and the Toolbar 30 allows the trader toselect common trading commands. The screen also includes a multi tenororder limit panel 31 in which single bid and offer amounts may bespecified to limit exposure across multiple tenors.

A number of tenor lines (more than fifty) may be visible on the screenconcurrently. There may be additional tenor lines that are not visibleon the screen due to space constraints, but can by easily be broughtinto view. The screen also allows the trader to elect to show fewertenors (as few as eight) depending upon the trader's preference.

The Tenor Detail Panel is shown in FIG. 2 and shows a selected TenorLine in more detail. It includes:

Tenor Identification 32 (currency and description);

Tenor Date Information (Fixing Date 34 a, Settlement Date 34 b andMaturity Date 34 c);

Regular Dealable Bid and Offer Prices for “regular” amounts 36, 37satisfying credit screening (A “regular” amount is an amount at leastequal to a system default value representative of a typical trade in aparticular currency, and may for example be 50M pounds). The amount isshown at 38, 39;

Best Dealable Bid and Offer Prices 40, 41 (the best price availableafter credit screening for any amount) along with the total quantity(“Best Bid 42 and Offer 43 Amounts”) available at those prices;

EBS Best Bid and Offer Prices 42 (the best price available on the wholesystem regardless of credit (though this may not be available to thetrader)) if this differs from the corresponding Best Dealable Prices;the Best Bid amount 43 and Best Offer Amount 45, which show the totalamounts available at the best dealable bid or offer price for all bidsor offers satisfying credit restrictions; and

The “Big Figure” 44 which is the most significant digit in the price.

Note that much of this information is also shown in each Tenor Line ofeach Tab Sheet (FIG. 1).

To the left of FIG. 2 is a bid/buy Order Status indicator 46 showing theamount requested and obtained for an open Order. The order price 48 foran open order submitted by a dealer is shown to the right of the orderamount. If an Offer/Sell Order was pending, its status would bedisplayed on the right.

Note that the bid (buy) prices are on the left, and the offer (sell)prices are on the right, and that all displayed prices are arranged inascending order from left to right. The EBS Best Bid Price (if shown)will always be better than the Best Dealable Bid Price. This is becausethe credit granting entity for this trading floor may not have extendedsufficient credit to the counterparty offering the Best Bid Price (orvice versa). Similarly, the Best Dealable Bid Price will always be atleast as good as the Regular Dealable Bid Price. In the particularexample shown in FIG. 2, the Best Dealable Bit Amount is 120 which islarger than the “Regular” amount of 50, and consequently the same price(5.4774) is shown as the Regular Dealable Bid Price and the BestDealable Bid Price.

To the right of the panel are shown the three last prices paid or given50 together with the deal time 52.

FIG. 3 shows the Offer Order Request Panel 58 which appears on the rightside of the Tenor Detail Panel when a particular Tenor has been selectedand either the Offer or Sell key has been activated. (A similar BidOrder Request Panel appears on the left side of the Tenor Detail Panelwhen a particular Tenor has been selected and either the Bid or Buy keyhas been activated). The Order Request Panel includes an Amount EntryField 60 and a Price Entry Field 62 both of which include up and downspin buttons for adjusting the respect entries up or down, as well as aSend Pushbutton 64 for submitting the order (assuming appropriatevalidation checks are positive) and a Quit Pushbutton 66 which dismissesthe Order Request Panel without any action being taken. As previouslyindicated with respect to FIGS. 1 and 2, once a valid order has beensubmitted, its status is displayed on both the Tenor Detail Panel (FIG.3) and in the corresponding Tenor Line (FIG. 2), with the latter showingonly the Amount Remaining in the outstanding order (ie, the differencebetween the Amount Requested and the Amount Obtained shown in the TenorDetail Panel).

In the described embodiment, the trading system is an electronicbrokerage system having a communication network for facilitating thebuying and selling of FRAs by traders each associated with his ownWorkstation (WS) 77 located at a trading floor of a subscriber bank(client site). The hardware used in the system has similarities to thecurrent EBS system for foreign exchange to which reference may be made,for example as described in U.S. Pat. No. 5,375,055.

As shown in FIG. 4, each client site has a dedicated client computer 78(“Market Access Node”, or “MAN”) under the control of a FloorAdministrator, which maintains transaction records, credit limits, andother confidential information originating with its associated tradingfloor. The WS's and the MAN associated with each trading floor areconnected via a conventional self-repairing DEC VAX network to a nearbydistribution node (“Market Distributor” or “MD”) computer 79, whichtypically analyses and distributes current market data by means ofdedicated permanent communication links to one or more associated MAN'sin a particular city (or other local region), and which may also provideadministrative functions for the communication network.

The communication network comprises a credit store, stored at each MAN,for storing an indication of the credit available from the group ofterminals associated with that MAN to other groups. As previouslyexplained, a group may be one or more terminals, but is preferably oneor more trading floors. The function of distributing prices is fulfilledby the Market Distributors. The Market Distributors also include acredit filter comprising a yes/no Pre-Authorisation Matrix from which itis determined whether prices should be transmitted to the traderterminals for display.

Although not considered critical to the present invention, a group ofMD's is preferably supplemented by common trading region processing node80 (“Arbitrator Node” or “ARB”), with the ARB performing those functions(such as identifying potential matches between buyers and sellers, andother aspects of the “Deal Matching” process that require coordinationwith more that one client site) which make the most efficient use of thecommunication network if done centrally or regionally, while the MD'sperform those functions (such as generation of separate Dealable priceinformation for each individual client site) which are readilyimplemented in parallel in a distributed processing network and whichmake most efficient use of the communication network if done locally orin close proximity to the individual client sites.

In that regard, it is possible to have more that one ARB, with each ARBhaving primary responsibility for trades initiated by Market Makers inthe ARB's own trading region, and being connected to all the MAN's andMD's of that trading region as well as to the other ARB's in othertrading regions be permanent dedicated links of the communicationnetwork. In the majority of deals, it is anticipated that both the Makerand the Taker will be within the same trading region and this will bedirectly linked to the same ARB which can therefore identify a potentialmatch and coordinate its final execution without any communication withthe other ARB's; at the same time, the other ARB's can simultaneously beprocessing deals related to other traders in other regions.Alternatively, a single arbitrator could be dedicated to all tradesinvolving a discrete subset of the available financial instruments. In apresently contemplated commercial embodiment, a single centralArbitrator is dedicated to FRA trades, while several regionalArbitrators are collectively dedicated to spot FX trades.

Whether the communication links between nodes are permanent (maintainedindefinitely between two network components) or temporary (establisheddynamically for a short period of time) they are preferably “logicallinks” which have the property that messages sent in a certain orderover the same logical link are guaranteed to reach their destination inthe same order. Moreover, the communication network is preferablyprovided with sufficient error detection error correction, and networkself-repair capability to guarantee that messages sent via these logicallinks are error free.

In summary, each MAN is connected to other MAN's by a robustcommunication network which connects the various trading floors andwhich supplements the MAN's with a number of processing nodes(preferably in the form of MD's and ARB's) to facilitate thedistribution of price quotations and other market data and to executetransaction by matching eligible Market Makers with eligible buyers andsellers and by monitoring the transactions until they have beencompleted or aborted, with the MAN's being responsible for trading floorspecific tasks such as logging the completed transaction and updatingthe credit limit that was previously available to the counterpartytrading floor.

Although described above in terms of a distributed architecture, itshould be noted that a single central computer system could be used toimplement the various functions described above. The system of thisalternative embodiment would thus comprise a plurality of workstationsconnected by a network to a central computer system. The central systemwould include the credit store, distributor and credit filter arrangedto filter prices for distribution to the workstations. This is asimpler, but non-preferred, implementation. The distributed embodimentdescribed is considered to be a more robust and secure design.

A system embodying the invention enables the system described, andfurther detailed in WO00/16224, to be configured to enable voiceinstitutions to take part in the electronic broking process. Thisenables institutions and other customers who do not use the anonymoustrading system described to participate in it through a voice broker.Thus, it broadens the scope of the market to which they have accesswithout them having to switch from the traditional mode of broking via avoice broker.

FIG. 5 shows a revised version of FIG. 4 in which a number of VoiceBroker Workstations VWS 81 are included in the system. It is throughthese workstations VWS that the voice brokers communicate with theanonymous trading system. A number of voice broker workstations may beattached to the network.

The system supports both voice traders who also subscribe to theanonymous system as well as voice traders who act through theintermediary of a voice broker.

The voice brokers, while appearing as any other workstation to thenetwork are treated as a special case. The VWS are supplied with thewhole market book for specific tenors in price/time order rather thanjust the top of the market. The voice broker enters orders on behalf ofvoice traders but orders submitted by a voice broker are owned by thatbroker. In the existing system, such as described in WO00/16224, theorder is owned by the trader who inputs the order into the system.

The traders, be they voice traders acting outside the anonymous tradingsystem or electronic traders on the system, can call the voice broker ona “price for a call”. This is a well understood term in the financialmarkets meaning that a trader is asking the broker for a price for aparticular amount.

The voice broker, in response to a request for price for a call, canlook at a price on the anonymous system but may also work outside thetrading system by calling a number of makers to get two sided prices;that is, buy and sell prices. The voice broker can then select the bestbid and best offer and quote that to the trader regardless of whether itoriginated on or off the anonymous trading system.

Traders on the system can call the voice brokers to place an order as abid or offer. The voice broker submits the quote, including the price,size and name, to the market established by the anonymous trading systemon the trader's behalf. The quote from the trader is included in thecalculation of the credit-screened market view that is prepared for eachof the traders on the system. Thus, if the quote is from a counterpartywith which a given trader's institution has a line of credit, it will bevisible to that trader. Traders on the system can hit the quotesubmitted by the voice broker in the same manner as a conventionalprocess although the deal completion process is different as will bedescribed. Voice broker input quotes can also be hit by voice tradersacting through voice brokers.

The voice broker is in full control of the quotes that he has submittedto the anonymous trading system. He can reject or confirm deals againsthis quotes, for example from on-system hits. This is different fromquotes input from traders on the anonymous system and is necessary asthe voice broker may be working manually on a portion of the quote.

A trader can call a voice broker to buy or sell a certain amount at acertain price. The voice broker has the option of executing that ordereither manually or via the anonymous trading system. If it is to beexecuted manually, the deal is completed over the phone and is thenentered as a done deal into the system. It should be noted that althoughcompleted outside the anonymous trading system, the presence of the dealin the system can still affect the system, for example, the dealparticulars will be seen by other traders and may affect their bid andoffer process.

If the voice broker executed the deal electronically the order isentered into the system as a bid or sell order. The broker then sees themarket from that trader or trading floor's point of view. That is themarket view he sees is pre-screened for credit to filter out quotes fromcounterparties with which the trader cannot deal. However, the creditscreening is not for credit within the anonymous trading system butexternal credit. That is, there is a check for credit apart from thecredit apportioned to the anonymous trading system, between the trader'sinstitution and possible counterparties.

The voice broker can select quotes to be matched against orders receivedfrom the trader and may assist in deals. In that case, the deal is nolonger anonymous, names are submitted and a manual credit check is madeon the side which called for broker assistance. The voice broker has thepower to reject the deal if credit is unavailable.

When a deal is complete it is logged into a trade database and passed toback office settlement systems.

The manner in which voice brokers interact with the anonymous tradingsystem will now be described in the context of the FRA Trading Systemdescribed with reference to FIGS. 1 to 5.

The or each voice broker is treated as an institution and as such isassigned a bank ID. The voice broker has its own market access node asdescribed with reference to FIG. 5 and is visible to the trading flooradministrator. Existing trading floors on the system then can assigncredit to the voice institution as if it were any other institution withwhich they may wish to trade. Until that credit information has beenentered, a given trading floor cannot see quotes input by the voiceinstitution.

The voice institution then needs to enter its credit matrix on theanonymous system. Rather than assigning an individual credit amount toeach institution it indicates either that it may trade or that it willnot trade. All trades are subject to final confirmation by the voiceinstitution and the credit matrix may be updated periodically, forexample on a daily basis.

FIG. 6 illustrates the process which occurs when a voice broker submitsan order to the anonymous trading system on behalf of a voice trader.

At step 100 the trader, who may be a voice or electronic trader, callsthe voice broker with an offer request. The voice broker enters theoffer onto the anonymous trading system including the price, the sizeand the counterparty, at step 102. At 104 the voice broker thenannounces the best price on the anonymous system which is received at106 by all voice traders. When the price is submitted to the anonymoustrading system is it distributed to the traders at 108. A givenelectronic trader will see the price as a dealable price, at 110, if hehas credit with counterparty otherwise he sees the best price on theanonymous trading system.

FIG. 7 shows the screen of the voice broker's workstation showing anoffer being entered on behalf of a trader from an institution identifiedby the four letter code CITL. The screen is similar to that of FIG. 1with the various FRA tenors shown at the left hand side of the screenand the tool bar across the top. The centre window 112 is configured toshow an overview of all quotes in the system and the right hand windowis split onto a column 114 showing bids and a column 116 showing offers.It will be noted that this display is a little different from that shownin FIG. 1 and appreciated that the exact display is a matter of designchoice.

In the toolbar 30, the institution CITL (at 118) has been set. As aresult, the broker is trading on behalf of that institution and themarket view is the credit screened view appropriate to that institutionand the book is the book for that institution.

The voice broker then uses his mouse to check the offer button 120 onthe tool bar causing the order request or quote panel 122 to bedisplayed. The voice broker enters the details of the offer in the queuepanel, which is very similar to that shown in FIG. 3 with the amountbeing entered in the box 60 and the price in the box 62. To send theorder to the system the voice broker hits the SEND button 64 after whichthe panel is automatically dimissed. To dismiss the quote panel withoutSEND, the broker hits QUIT button 66.

Turning now to FIG. 8, the quote received from the voice broker isincluded in dealable, that is credit screened, prices distribution tofloors who may be able to trade with that counterparty. However, unlikecredit information entered by trading floors, the credit informationentered by the voice broker only indicates that an institution may wishto trade. Therefore, a trader hitting the quote cannot be certain thatthe price is dealable or that his hit will be accepted. The screen shownin FIG. 8 is the broker's workstation showing the market from the CITLtrader's point of view after the offer has been submitted from him. Theorder can be seen at 124 as the latest quote in the quote overviewwindow and as the only offer in the traders market panel 114/116. Themarket panel shows quotes supporting tenor prices in price/time orderand are shown highlighted or in a different colour if there is nocredit.

In the tenor detail panel the quote is shown as entered against theselected tenor and is also displayed against that tenor in the tenorline. It will be seen that up to three quotes can be entered against anygiven tenor.

At this stage, the voice broker announces the ATS (Anonymous TradingSystem) best price to all his traders some of which may also beelectronic traders.

FIG. 9 illustrates the process which occurs when an electronic tradehits a broker assisted offer which has been submitted as described withreference to FIGS. 5 to 8.

At step 200, the electronic trader hits a price on his screen. If thereis credit, the price will appear black, although this is a perfectlyarbitrary choice of colour. At step 202, the anonymous trading system(ATS) suspends the quote that has been hit and notifies the voicebroker. At step 204 the voice broker checks the status of the order thathas been hit and at step 206 checks credit with the maker. At 208 thetrader, who may be voice or electronic, checks his institution's creditwith the electronic trader's institution and, if there is sufficientcredit tells the voice broker the amount at 210. At 212 the brokerenters the amount of the deal to be done into the ATS system and at 214the system checks the taker's credit (the taker is the electronic traderwho hit the price). If the system finds sufficient credit it subtractsthe deal amount from the quote and then reactivates it at step 216unless the order has been fulfilled. At step 218 a done deal isacknowledged at the electronic trader and at step 220 the broker, anotification from the system notifies the done deal to the voice traderwho receives the acknowledgement at 222.

FIGS. 10 to 12 show broker workstation screen shots for the process ofFIG. 9.

When the quote is hit, the quote entry in the overview panel 112 willchange in appearance, for example it will change to green. In theexample the quote that has been hit is the quote 124 input in theprevious example. By double clicking the line 124 the broker ensuresthat CITL is selected in the combo box and that USD-L Sep 00 is theactive tenor. In addition the quote overview caption flashes green whenthere is a hit and the quote status information in the Tenor Line andthe Tenor Detail Panel also are displayed in green, or some othercolour. The status panel in the Tenor Detail Panel then expands todisplay at 230 “CPTY for nnn?” where CPTY is the four letter code forthe counterparty who has hit the quote and nnn is the amount. “Yes” and“No” response buttons 232, 234 are also displayed to enable the voicebroker to respond. The Tenor Sheet Caption also flashes green such that,if it is not the active one in the column, the broker receives anindication that there is a hit at a hidden tenor. The highlighting ofthe tenor line and tenor detail only occur when the appropriateinstitution, in this example, CITL, has been selected in the combo boxon the tool bar 30 by the voice broker. If a different institution isselected, the overview sheet caption and the quote 124 will still behighlighted to alert the voice broker to the list.

When the hit is received, the broker informs the trader who submittedthe quote of the attempted hit. The trader checks that his institutionhas credit with the electronic trader's institution for all or a portionof the amount and tells the broker the amount. These steps are performedoutside the anonymous trading system. If credit is available, the brokerclicks the yes button 232.

It will be appreciated that the trade ceases to be anonymous as soon asthe taker hits the quote. The taker is necessarily identified to thevoice broker as the maker has to perform a credit check which isexternal to the anonymous trading system.

FIG. 11 shows the broker's workstation after the broker has hit the yesbutton. A hit confirmation panel 240 appears in the tenor detail panelwhich identifies the counterparty (MGTL) and the amount. At this stagethe amount is displayed in a panel next to a scroll bar enabling thebroker to vary the amount. The confirmation panel also shows the priceand has send and quit buttons 242, 244. The broker confirms the deal byclicking the send button 242.

If there is an amount of the quote remaining in the system the suspendedquote is reactivated. While the quote is suspended it is temporarilywithdrawn from the market but retains its position in the queue which isprice/time based.

The hit from the electronic trader will time out if not attended to bythe broker within a certain time. This is illustrated in FIG. 12 wherethe quote status panel changes from green to another colour such asgrey. The broker can reactivate the hit by clicking the “no” button.

FIG. 13 shows the Broker Workstations Screen showing the market viewsand book, credit screened for institution CITL once the deal has beencompleted. The quote 124 which has been traded is shown in the quoteoverview panel as being of an amount 150/300 indicating that of the 300original offer amounts, 150 has been fulfilled. The other panel alsoshows that the amount offered is now 150, reduced from the original 300.

FIG. 14 shows the process which occurs when a trader calls the voicebroker with a price request. The trader may be a voice or an electronictrader. The trader at step 300 calls the broker with a price request.The amount need not be specified. In FIG. 14 the call is shown as madeby the voice trader but it could come from an electronic trader. At 302,the broker enters into the ATS the trader's bank code, which is the fourdigit identifier such as CITL referred to in previous examples. At 303the anonymous trading system displays the credit screened book for thetrade requesting the price with the order book being displayed inprice/time order. At step 304 the broker may put out a call for a priceto selected voice traders and at step 306 the broker pieces togethervarious information he has gathered to provide the trader with a twosided price. A two sided price is the buy price and the sell price. Thisprice will be deduced from quotes available on the anonymous tradingsystem and prices provided by other traders and will be the best that isavailable from the two sources. At 308 this best price is received bythe trader.

The following example considers the case where the broker makes a “buy”request on behalf of a trader, who may be voice or electronic. There arethree possible scenarios: that the price the broker hits is from anelectronic trader; that the price hit is from a voice trader operatingon the anonymous trading system through a voice broker; or that thebroker hits a price from a call for a price received from outside theanonymous trading system. FIG. 15 shows the process where the price hitis provided by an electronic trader. At 400, the voice trader calls thevoice broker and informs the broker that he wants to buy at a certainplace. At 402 the broker enters the traders four letter code into thewindow on his toolbar and at 404 the ATS provides a credit screened bookfor the traders institution to the voice brokers workstation.

The book is displayed in price/time order with quotes appearing in blackbeing dealable and quotes appearing in red not being dealable.

At 406, the broker hits the price ordered by the trader. In this casethe price has been input into the system by an electronic trader. At408, the ATS reserves the deal amount and at 410 performs a credit checkagainst credit limits stored in the system in the manner described inWO00/16224 and U.S. Pat. No. 5,375,055. If there is not bilateral creditthen, at 412, the ATS suspends the quote and enters a manualconfirmation mode. At this point, at 414, the electronic trader isprovided with the identity of the counterparty on behalf of whom thevoice trader is acting and is left to perform their own credit checkexternal to the anonymous trading system. The electronic trader replies“yes” or “no” following the credit check. If the reply is “yes” at step415 the ATS updates the broker's workstations asking for confirmation.At 418, the broker discloses the identity of the counterparty to thevoice trader and asks whether he has credit with that institution. At420, the trader performs a credit check and provides an answer to thevoice broker. If there is credit and the voice trader can do the dealthe broker sends, at 422 an acknowledgement to the system with a “donedeal” message. At 424, the ATS subtracts the done amount, and if thereis any amount left, reactivates the quote. The system then updates allthe trader workstations. Finally, at 426, the done deal is acknowledgedby the system to the electronic trader.

FIG. 16 shows a trader workstation screen shot when there isinsufficient credit within the anonymous trading system to complete ahit from a voice broker. It will be noted that this screen isessentially the same as that of FIG. 1. The screen includes,additionally, a quote overview panel 430 arranged below the trader dealspanel. When the voice broker hits a price, that price is highlighted onthe trader's workstations. In this case the quote 432 is the only quotethe trader has in the market and the quote turns green in his quoteoverview panel. The quote in the tenor line is also highlighted in greenas is the sheet 434 in which the tenor is located. For example, if thetrader had a GBP-L quote in the market but was displaying the USD-Ltenor line, the flashing green GBP-L sheet would show him that there asa hit on a tenor on the GBP-l tenor line. By double clicking the quotein the quote overview, the trader ensures that the quote is the activequote. The status panel in the Tenor Detail Panel is then displayedwhich identifies the. counterparty and the amount and gives the traderthe option of accepting or declining or accepting for a reduced amount.It should be understood that if that this status panel only appears ifthere is insufficient credit within the system for the proposed trade;the trader is being asked for to rectify that there is sufficientadditional credit external to the system.

Multiple quotes are ordered in Price/Time order from the middle of thepanel outwards and change colour depending on their status. A Blue quoteis a quote that is in the market; a Red quote is the best in the market,a Grey quote is a done quote and a Green quote is a hit quote. Thestatus of the quote is displayed in the expanded version of this in theTenor detail panel. The status information reflects the quote currentlyselected. This quote has a depressed border around the sub-filed at thebottom of each quote. These amount sub-fields act like radio buttons.

To accept the hit, the trader clicks on the yes button and then entersthe amount. If there is insufficient credit for the full amount, thetrader may enter a lesser amount.

FIG. 17 shows the trader workstations after the trader has accepted thehit from the broker acting on behalf of CITL and showing how the amountaccepted can be adjusted.

This is within the list continuation panel 440. When the amount isdecided the trader then hits the send button 442. The system will thenupdate the voice brokers workstation with a request for acknowledgementthat a deal can be done. The broker asks the voice trader whether he candeal with that counterparty and, if he can, the broker acknowledges thedeal to the system which then performs steps 424 and 426 of FIG. 15.

FIG. 18 shows the process where the price hit has been submitted by avoice broker trading as the anonymous trading system. Steps 500, 502 and504 are the same as steps 400-404 in FIG. 15. At step 506, the pricethat voice trader 1 has asked the broker to hit has been submitted byanother voice trader, voice trader 2. In the following discussion itwill be assumed that voice trader 2 is acting through a separate voicebroker, voice broker although he could be acting through the same voicebroker as voice trader 1.

At 508, the ATS suspends the quote that has been hit and sends a messageto the voice broker 2 that there has been a hit, identifying thecounterparty and the amount. At 510 the second voice broker identifiesthe hit to voice trader 2 and enquires whether he wishes to do the deal.At 512 trader 2 checks his credit with trader 1's institution andresponds to the voice broker. If there is no credit, the second voicebroker records a “deal refused” message in the system at 514. The creditmatrix is then updated at 514 to disable temporarily credit betweenthese two traders or trading floors. If trader 2 accepts the deal, voicebroker 2 confirms the deal to the system at 518 and, at 520 the systemupdates the first brokers workstation and asks for confirmation. At 522the first broker then asks his trader if he has credit, which involvesdisclosing the identity of the counterparty and the amount. At 524 thefirst trader performs his own external credit check and responds yes orno to his voice broker. If the response is no, the broker enters thisinto the trading system at 526 and at 528 the credit matrix is disabletemporarily between the two trading floors party to the deal. The thereis credit, the voice broker at 530 sends an acknowledgement message tothe system that the deal is done and at 532 the system subtracts thedone amount, reactivates the quote if it is not completely filled andupdates all the trader workstations. At 534 the done deal isacknowledged by the first voice broker to the second voice broker whoinforms the second voice trader who in turn receives the done dealacknowledgement at 536.

The final case is where a trader calls the voice broker for a price andthe broker hits a price on the trading system. The mechanism for thiswas described with respect to FIG. 14. Referring to FIG. 19, at 600 atrader informs the voice broker that he wants to buy an amount at aprice after the broker has given him the best two-way price.

That price has been offered by another voice broker in this example andthe process followed is the regular deal making process between twovoice brokers. At 602, the second trader decides to hit the call for aprice. At 604 the second trader confirms that he can do the deal and thefirst either accepts or refuses. If he refuses the process stops. If heaccepts, the broker confirming with the first trader at 606. At 608 thefirst trader confirms that he can do the deal having made the necessarycredit checks and the second trader responds with a yes or no. If theanswer is a yes, the broker at 610 confirms the deal as done with trader2 and enters the deal into the anonymous trading system. At 612 thesystem distributes the deal information to other traders where it willappear in their deals panel. The second trader then receives the dealconfirmation at 614.

The broker workstation has a done deal button on the Tenor Detail Panel.Clicking the done deal button displays a deal entry panel which collectsinformation from the broker as to whether the deal is paid or given, theidentity of the counterparty, the amount and the price.

FIG. 20 shows how the display may highlight prices made by voice brokersas opposed to electronic traders by showing these prices in a differentcolour, for example in pink on the screen. Although hard to discern fromFIG. 21, the final quote 710 in the quote overview column has beensubmitted by a voice broker and is shown in a different colour. Thisquote is shown in the final tenor at 700 again in a different colour.Also shown in the list of tenors are best prices which are from voicebrokers, again in a different colour. It will be appreciated that bothsides of the penultimate tenor and the left side of the fourth tenor arefrom voice brokers.

As can be seen from the tenors for December 1, March 2 and September 2,the Best Dealable price shown is dual colour. The left hand segment,which may be coloured pink, for example, indicates the proportion of theprices in the market that have been entered by voice brokers. Thus, forexample, the pink (left hand) portion of the March 2 Tenor Panel shows agreater proportion of dealable prices provided through voice brokers. Itfollows therefore that the remainder of the market has been provided byelectronic trades. This may conveniently be shown in cyan.

The manner in which credit processing is performed within the anonymoustrading system will now be described.

The credit processing performed for interest rate futures and otherderivatives in general, and FRAs in particular, differs significantlyfrom credit processing for spot FX trading. While spot FX is concernedwith settlement risk, for FRAs market risk is the primary concern. Forthis reason, the technical considerations in implementing the systemdiffer.

For Forward Rate Agreements, three factors are used to calculate creditutilisation;

-   1. The time between the trade date and the settlement date (start of    the contract period), hereinafter called the TTS (Time To    Settlement).-   2. The volatility of interest rates in the currency of the FRA.-   3. The time between the settlement date and the maturity date, ie,    the gap of the FRA.

The actual liability for a FRA is not fixed at the time the price istaken because, as can be seen from the formulae above, the actualliability will depend on the difference between the interest rates atthe trade and settlement dates. For this reason, a Credit Utilisationformula has been devised and implemented as follows:

Credit utilisation=(Deal size)×(TTS factor)×(# months/3)×(Interest ratevolatility factor)×(CCY conversion rate).

The TTS Factor is a Time to Settlement Factor assigned to every monthbetween 0 and 24. When credit is calculated, the workstation will usethe TTS Factor assigned to the TTS month. The workstation will calculatethe number of months between the Trade Date and Settlement Date to findthe TTS Month. The Credit Utilisation calculation will then use the TTSFactor assigned to that month. This allows the TFA to factor into theCredit Utilisation calculation the time between the Trade and SettlementDates.

The TTS factor is used in the credit calculation. This is a non linearcalculation method for the time between trade date and settlement date.A table is produced, initially ranging from 0-36 months, of TTS valuesto be used in the credit utilisation formula. The factors in the tablemust be able to be set by the TFA. The table is to be pre-populated withfactors calculated by taking the square root of the TTS. The initialvalues of the table for the 0 and 1 month TTS are to be 1.

Example of pre-populated TTS table:

TTS 0 1 2 3 6 9 12 15 18 36 factor 1 1 1.414 1.732 2.449 3 3.464 3.8724.242 6

The currency volatility parameter must be able to be entered andmodified online via the TFA for each FRA currency traded on the localfloor. And as previously explained, the linear calculation method forthe contract period or “gap” (the “three month equivalent”) is a fixedformula that can't be modified online:

3 mo. Equivalent factor=(# of mos in gap)/3

# of Months in Gap/3—All IMM tenors have a 3 month gap between theSettlement and Maturity Dates. So this value is calculated as 3/3 or 1.

Interest Rate Volatility Factor—The IR Volatility Factor is a percentvalue assigned to each currency. The system will store the value as apercentage number.

CCY Conversion Rate—The currency conversion rate between the CreditLimit Currency and the currency for which the deal is done.

As an example, a USD June 00 FRA traded Jun. 16, 1998 for 100 millionhas the following characteristics:

-   -   Trade Date: Jun. 16, 1998    -   Fixing Date: Jun. 19, 1998    -   Settlement Date: Jun. 21, 2000    -   Maturity Date: Sep. 20, 2000    -   Tenor Cap: Jun. 21, 2000 to Sep. 20, 2000 (91 days or 3 Month        Gap)    -   Deal Size: $100,000,000

Factors are assigned by the TFA along with the Credit Limit Currencywhich is assigned on the Market Access Node. In this example, the CreditLimit Currency is USA. The factors that would be used for the aboveexample are derived using the above table.

Using the above formulae, the credit utilisation is:

(Deal Size)×(TTS Factor)×(# of Months in Gap/3)×(Interest RateVolatility Factor)×(CCY Conversion Rate)=Credit Utilisation.

(100,000,000)×(4.89898)×(3/3)×0.0014×(1.000)=$68,586=Credit Utilisation.

In implementing credit limits on the FRA system, the Trading FloorAdministrator (TFA) has the ability to set and adjust the variousparameters from which matching criteria are derived.

A credit utilisation notification is included which issues low creditwarning at the trader's WS when the available credit for a counterpartyfalls below a percentage that is defined via the TFA. An out of creditmessage is also displayed at the trader's WS when credit is exhaustedfor a particular counterparty. Prices from that counterparty, for alltenors, will no longer be displayed. A credit utilisation report may beinitiated, on demand, via the TFA for both screen and hard copy output.

Parameters Used in the System

Banks initially define, and modify online, the following parameterswhich are stored at the local MAN for their local trading floor via theTFA facility;

-   a) credit limit currency—Market Access Node-   b) a separate credit limit currency conversions rate parameter for    each currency traded on the system.-   c) a parameter related to the nature of at least one financial    instrument in the form of a currency volatility credit utilisation    factor for each currency traded on the system. The currency    volatility factor is indicative of the risk associated with each    financial instrument assessed by the TFA.-   d) Time to Settlement credit utilisation factors for the currencies    traded on the local floor. The TTS factor is preferably non-linear    and also not specific to any financial instrument traded.

Each credit group preferably comprises a plurality of trading floors.Anyone credit granting entity (which itself could be a trading floor)may trade with a trading floor of a group defined by the TFA ifsufficient credit is available.

Banks also define the following for each counterparty (credit group)that they trade which are also stored at the local MAN:

-   a) available credit-   b) low credit warning percentage.

Banks also have the following options for resetting credit utilisationto zero:

-   a) Automatically at the end of the trading day, as is currently done    for spot. The time of the end of the trading day from FRAs is    preferably definable separately from that for FX spot.-   b) On demand via the TFA    -   1) for an individual credit group    -   2) for all credit groups.

The TFA also has the ability to disallow particular floors within acredit group. If a floor is disallowed, it does not take part in thecredit of that group.

To be compatible, each of the two parties must make sufficient creditavailable to the other party to complete a trade for a least thepredetermined minimum size deal in any available currency (ie, availablecredit at least equal to the minimum credit threshold established by therespective credit granting entity).

The calculation is thus:

Minimum credit threshold=Maximum of {(minimum 3 month equivalentamount)×(credit TTS utilisation factor)×(# of months in gap)×(Interestrate volatility factor) (conversion rate)} for each currency.

Derivation of the Pre-Authorisation Matrix

The exemplary Pre-Authorisation Matrix shown in FIG. 20 is derived fromthe various parameters defined by the Trading Floor Administrator (TFA).In the example shown, each group comprises one trading floor.

Certain prices are said to be dealable, which means that they arepre-screened for credit. A dealable process means that sufficientbilateral credit is available with the counterparty making the price toexecute at least one minimum size trade in the tenor that utilises themost credit.

The concept of dealable prices for FRAs is based on credit compatibilityfor all tenors. Therefore two trading floors are said to be creditcompatible if they have bilaterally allocated enough credit to eachother to execute one minimum size trade in the tenor that utilises themost credit available on the system.

For each FRA currency a 3 month minimum notional amount is set as asystem parameter. The formula to calculate the minimum size for anytenor is;

minimum size=(3 month minimum notional amount)/(# months in gap/3)

EXAMPLE

EBS has defined the 3 month minimum notional amount=USD 50 mill

The minimum size for a USD June 98=(50 mill)/(3/3)=USD 50 mill. Theminimum size for a USD Sept98-6=(50 mill)(6/3)=USD 25 mill

Since credit utilisation is a function of;

-   1. Time between trade date and settlement date (TTS)-   2. Time between settlement and maturity (gap)-   3. The volatility of interest rates in the currency of the FRA then    for two floors to be credit compatible they must have sufficient    credit available to execute a trade for a minimum size in the tenor    with the highest calculated utilisation. This should mean that,    subject to credit changing during deal completion, the two parties    will be able to complete a deal in any currency at least of minimum    size.

A trading floor can control, to an extent, the minimum credit thresholdnecessary to display dealable prices by modifying time to settlementfactors with times to settlement that utilise the most credit. Forexample, a floor can specify time to settlement factors which do notincrease for those factors beyond where they want to trade. Also, afloor can set the currency conversion to zero for particular currenciesthus electing not to trade in volatile currencies offered, thus reducingthe credit availability necessary to see prices in less volatilecurrencies.

EXAMPLE

The system of the present embodiment allows trading in tenor rangingfrom 0×1 out to 24×27 in USD, GBP and JPY. The minimum trade sizedefined is set as USD 50 million (3 month equivalent notional value).

In the following case, for floor A to see dealable prices from floor Bthey must allocate sufficient credit to execute one trade in USD for aminimum notional size 50 million.

Trading floor A uses USD as their credit limit currency.

Trading floor A is only trading USD FRAs.

Trading floor A has assigned a currency volatility factor to USD of0.5%.

For floor A to see prices from floor B, it must allocate sufficientcredit to floor B to execute on USD Mar 00 (24 months away) for USD 50mil.

The minimum credit is calculates as follows (the TTS factor is assumedto be the square root of the TTS): minimum availablecredit=(4,4889)*(0.005)*(50,000000)=$1,122,225.

Having calculated the minimum credit threshold, the Market Access Nodethen calculates for each potential counterparty whether at least theminimum order seize could be dealt by checking against the credit limitavailable for the Credit Group associated with that counterparty, andtransmits a CreditUpdate message to the affected Arbitrator(s) andMarket Distributor(s) containing a-simple binary indication of whethercredit is currently available or not available to each designatedpotential counterparty in an amount at least equal to the calculatedminimum credit threshold established by the credit granting entityassociated with that Market Access Node. Provided that the relevantthreshold has been met, the Arbitrator(s) and Market Distributor(s)receiving the CreditUpdate message place a “1” in the associated cell oftheir Pre-Authorisation Matrix. Conversely, if the CreditUpdate messageindicates that the available credit is below the relevant threshold, theArbitrator(s) and Market Distributor(s) receiving the CreditUpdatemessage place a “0” in the associated cell.

The Pre-Authorisation Matrix is then used in known fashion to pre-screendistributed buy/sell orders so that only “dealable” prices are shown totraders.

The foregoing discussion excluded, for simplicity, the handling ofcredit as between the broker workstation and other institutions.

As will be clear from the previous discussion, the voice broker cansubmit to the trading system the identity of a client institution. Thesystem then displays at the broker's workstation credit-screened pricesand a credit-screened view of the book, based on the credit matrix forthe selected counterparty. Thus, the broker workstation provides aplurality of trading parties and the broker can select a market view fora given trading party.

The broker workstation can display dealable prices and the best price onthe system (which may be from a counterparty with whom there is nocredit) for each instrument traded on the system. These prices aredisplayed din the same way as the regular trader workstations if theinstitution ID entered by the broker were on the matrix system. Thebroker workstation also shows all dealable quotes in the market for eachinstrument traded on the system. These quotes are sorted in price/timeorder and indicate the originating bank ID. These quotes are colourcoded according to the credit matrix with black indicating that creditis available and red that no credit is available.

The broker workstation can also display a complete view of the book withno credit screening. This enables the broker to see a complete view ofthe market across its depth when he is not acting on behalf of aparticular trader.

The broker workstation shows all deals in which the broker has beeninvolved, but unlike trader workstations both parties are disclosed andthe deals information can be filtered by voice trader or institution.

As shown in FIG. 4, the broker workstations are connected to a marketaccess node, these may be a number of market access nodes each with oneor more broker workstations attached. The market access node for thebroker workstations performs a number of functions as follows:

-   -   1. Submission of broker quotes to the arbitrator.    -   2. Cancellation of broker quotes.    -   3. Reception of whole book for a specific tenor and transmission        to a broker workstation.    -   4. Reception of the credit matrix and update for a specific        floor from the market distributor.    -   5. Reception of the system market view for each trader on whose        behalf the voice broker can act.    -   6. Submission of hits from the voice broker to the arbitrator        against a specific quote.    -   7. Rejection or confirmation of deals.    -   8. Logging of deals in a trade database.    -   9. Printing and reprinting of deal tickets.    -   10. Hand off to the voice broker and customer's back office        systems.

Our earlier application WO00/16224 describes the message flow around thenetwork of the type described in FIG. 4. For reasons of brevity, thatwill not be repeated reference is directed to that publication. Theinclusion of the broker workstation(s) and associated one or more marketaccess nodes gives rise to a number of additional broker relatedmessages as follows.

A Broker Quote message is used to submit a hit entered by the broker.The message also contains the quote targeted by the hit and is sent bythe broker's market access node to the arbitrator.

A Broker Hit Notify message is sent by the arbitrator to the makermarket access node (that is the node from which the quote that been hitoriginated) to notify that node about the broker deal. It also causesthe market access note to display a message of the maker traderworkstations that a manual credit check is required.

Broker deal status (Maker/Taker) is a pair of messages which informs thecomponents involved in a deal (maker and taker) about the broker deal.

A Broker Hit Processed message informs various components about thedeals done by the voice broker manually. It is by means of this messagethat deals conducted outside the system are entered into the system.This is an important aspect of the embodiment described as it enablesthe electronic trading system to have a more complete view of the marketand so offer traders a more transparent environment within which tooperate.

It will be appreciated that the embodiment of the invention described isonly one of many embodiments of the invention. The description has beengiven with specific reference to FRAs but it will be appreciated thatthe invention is applicable not only to other financial instruments suchas F/X spot etc. but also to other fungible products such as metals,pork bellies and other commodities. The manner in which credit limitsare determined will vary depending on the nature of the instrument orcommodity being traded but the principle of automated credit checkingfor wholly anonymous deals with manual checking for voice brokerassisted deals remains unchanged.

The network described has a lot of distributed functionality. Othernetwork configurations are possible. For example, a centralised networkwith a trader and broker terminals connected to a host completer wouldbe possible. In such an arrangement, matching, credit checking and theassembling of market views would all take place at the host.

1-14. (canceled)
 15. A computerised trading system for tradinginstruments between parties including a plurality of order inputterminals for inputting bid and offer orders on behalf of traders, amatching engine computer for matching bids and offers input by tradersand, where matches are made, for executing deals, and one or more marketdistributor computers for distributing details of at least a portion ofthe bids and offers in the market to traders, wherein the order inputterminals comprise trader order input terminals and at least one brokerorder input terminal for entering bids and offers into the system onbehalf of traders operating outside the system and wherein the fulltrading book is distributed to the at least one broker order inputterminal.
 16. A computerised trading system for trading instrumentsbetween parties including a plurality of order input terminal forinputting bid and offer orders on behalf of traders, a matching enginecomputer for matching bids and offers input by traders and, wherematches are made, for executing deals, and one or more marketdistributor computers for distributing details of at least a portion ofthe bids and offers in the market to traders, wherein the order inputterminals comprise trader order input terminals and at least one brokerorder input terminal for entering bids and offers into the system onbehalf of traders operating outside the system wherein the trader orderinput terminals communicate to traders the amount of the market in theinstrument being traded that has been input from the at least one brokerorder input terminal.
 17. A system according to claim 16, wherein thetraders operating outside the system comprise voice traders.
 18. Asystem according to claim 17, wherein orders input at the brokerterminal are owned by a broker.
 19. A screen display for a traderterminal of an electronic trading system in which electronic orders areinput by traders via the trader terminals and by brokers on behalf ofthird parties via broker terminals, the screen display communicating tothe trader order information received from other traders and brokers viaa network, the screen further including an indication of the proportionof a given market that has been entered into the system by one or morebrokers.